In this video traders we are going to lookat the top 5 forex questions.
So what are the top five forex questions accordingto Google.
Let's answer them, this is perfect if you'rea beginner forex trader, just trying to find your feet and finding how it all works.
1) What does Forex Trading really mean? Forex trading is really trading or speculatingon the difference in one currency against another.
So in real simplified terms all you're doingis that you're speculating or betting on the direction of once currency pair.
And a currency pair would be USD (US dollar)against JPY (Japanese Yen).
So you're betting on how strong or weak therelationship between those two is.
It sounds complicated but ultimately you'relooking at something to increase in value if you're buying the pair and for the pairto decrease in value if you're selling the pair.
Now I've done a detailed video in the pastabout the relationship between strength and weakness.
But ultimately forex trading is betting onthe exchange rate increasing or decreasing between two specific currencies.
That's ultimately what you're trying to do.
Forex, foreign exchange, some call it currencytrading but same kind of thing.
Basically speculating on how that exchangerate changes over time whether its a short timeframe (few minutes say) or a longer timeframe(could be years!) but speculation on that exchange rate.
2) Why should I consider trading forex? To me trading is trading.
Forex benefits include very cheap to tradein relation to other markets when it comes to the bid-offer spread which is basicallyyour cost to trade.
Generally you won't have commissions or thespread plus commission which is the real total cost will be a lot smaller generally particularlyif you stick to the more popular currency pairs and you're trading with a reputablebroker.
Margin requirements can change slightly dependingwhere you are in the world but historically they've tended to be less than say tradingstocks directly or trading futures contracts.
There is also a lower barrier to entry, i.
most forex brokers will let you open an account with a smaller amount of money than say alarger broker that specialises in stocks just because of the higher value that you've gotto be trading to get some movement.
So the leverage is the margin – it gives youmore bang for your buck.
There are also plenty more resources out therefor forex traders as its very popular.
Loads of content out there, loads of videosincluding here on youtube.
Loads of educational material as well.
Carefully don't make a double-edge sword andstart over-consuming content that you don't need to but at least if there's a big libraryof stuff out there, you can pick things that you like and kind of dig into.
So that's one of the advantages of forex tradingcompared to say trading crude oil.
Crude oil is less popular and a little moreexpensive for instance.
3) Is forex trading risky? Yes, all trading is risky.
We've said that, disclaimers are includedat the end of the videos for good reason because it is quite risky.
The chances and likelihood are that you'lllose money trading.
The hope is that over time you'll come aheadand make some money but the risk is still there.
But in the beginning you are more likely toend up losing money.
You shouldn't be trading with any money youcan't afford to lose.
You should also understand that you can losea lot of money and there are ways to mitigate risk.
We talk about stop losses and we talk aboutkeeping position sizes small.
But if you keep your stop orders strict, youkeep your position sizes small you can lower and mitigate the risk.
You can't eliminate it completely, there arethings that can happen which means that you can have a significant loss to your accountand in some cases there is legislation that prevents this but in some cases you can losean amount in excess of the funds in the account.
So make sure you are aware of what's goingon.
It is super risky but you can also get extremereward with it.
And its the same with anything in life.
Big risks, big rewards and that's the gamethat we'll ultimately playing.
4) How can i trade a currency I don't have? This question is related to buying a currencyand what you're trying to speculate.
Ultimately, what you're doing is speculatingon the exchange rate between two currencies.
So say USD/JPY – how many USD dollars doesit take to buy 1 Japanese Yen.
Or how many Japanese Yen can I get for 1 USdollar.
That's ultimately what you are speculatingon.
If you're going to buy the currency and youare actually buying the physical currency so to speak you have to have a currency toexchange it in so for me being in the UK I go on and use my British Pounds and I buysay Japanese Yen.
Say I was buying literally notes – I wouldthen have an exposure to the currency exchange rate between the USD/JPY.
If it went in my favour then when I sold thoseYen back and made a bit of money, if it didn't I would lose money.
That's what we'll doing if we were in a homecurrency.
But if we are speculating on another currencyall we'll doing literally speculating on the exchange rate between the two and if we don'town the currency we can do stuff like spots, futures contracts, options – we are purelysimplifying – speculating on the movement of those two currencies (the exchange ratebetween those two currencies).
We are not necessarily taking ownership ofthe currency.
Very simply put we put some money to use asmargin / collateral for the trade we are taking and then use that to speculate.
5) How can compete with the big institutionsbanks.
In some ways you can't.
You don't have a lot of research or resourcesthese guys have but you don't necessarily need to.
We don't need to trade all day, everyday – wedon't have pressure on us to produce a certain amount.
We can trade when we like – we are very smallin relation to banks.
We don't have to worry about splitting tradesinto tranches or blocks to minimise the effect on the market.
And don't forget banks and institutions nowaren't really speculating on currency exchange rates as much as they were a long time ago.
They are taking orders from big companiesand governments and potentially big individuals and making money on these transactions.
They might even put a hedge in place for acompany which has some sort of foreign exchange risk.
They do speculate in some ways but it is farless than they would have done before.
So yes there are some firms out there thatare there purely to speculate on exchange rates and currencies like hedge funds forexample and proprietary trading firms.
And if we are trying to compete with thosewe are trading a different thing – those hedge funds are generally looking for changes inmacros – economic shifts in sentiment.